University of Michigan Final Consumer Sentiment Index Declines for February 2022

The University of Michigan today (2-25-22) released its final Consumer Sentiment Index (CSI) for February. The Index of Consumer Sentiment declined to a reading of 62.8 in February, down from 67.2 in January. This is a month-over-month decrease of -6.5% and down -18.2% year-over-year (76.8 in February 2021).

The Current Economic Conditions dropped to a reading of 68.2 in February, down from 72.0 in January. This is a month-over-month decrease of -5.3% and down -20.9% year-over-year (86.2 in February 2021).

Finally, the Index of Consumer Expectations fell to a reading of 59.4% in February, down from 64.1 in January. This is a month-over-month decline of -7.3% and down -16.0% year-over-year (70.7 in February 2021).

In remarks and analysis prepared to accompany the release of the preliminary February 2022 CSI, Dr. Richard Curtain (Ph.D., Economics), Director of Surveys for the University of Michigan said:

“Although Consumer Sentiment posted a slight increase in the last half of February, it still remained at its lowest level in the past decade, and the loss was still entirely due to a 12.9% decline among households with incomes of $100,000 or more. The February descent resulted from inflationary declines in personal finances, a near universal awareness of rising interest rates, falling confidence in the government’s economic policies, and the most negative long-term prospects for the economy in the past decade. Virtually all interviews were conducted prior to the Russian invasion so its impact is yet to be felt by consumers.

The most likely linkage to the domestic economy is through rising energy prices, with the size and length of the potential increases subject to substantial uncertainty. This will complicate the Fed’s policy actions, tilting their objectives to focus more on inflation at the cost of slower growth and higher unemployment. The financial harm and growing angst among consumers about rising inflation have pushed nearly nine-in-ten consumers to anticipate interest rate hikes. The Fed’s clinging to the transient hypothesis meant missed opportunities to nip inflation at its earliest stages; aggressive actions are now needed to avoid the potential establishment of an inflationary psychology that acts to form a self-fulfilling prophecy.

The imposition of sanctions against Russia is likely to generate counter measures that could harm the domestic economy, requiring the Fed to give special consideration to any associated economic slowdown and rising unemployment. Presumably, economic sanctions would be lifted only if Ukraine’s sovereignty is maintained, but not if Russia prevails. Consumers may double-down on precautionary behaviors if the greater cyber risks associated with the conflict are now borne by domestic households.”